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Law Pro
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Category: Real Estate Law
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Experience:  20 years extensive experience in real estate law, foreclosure, finance, and landlord tenant law.
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How to defend against a bad lien placed by a contractor

Resolved Question:

How to defend against a bad lien placed by a contractor
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Law Pro replied 1 year ago.
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My name is XXXXX XXXXX I'm going to assist you with your question.

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Did you get formal notice in writing by certified mail that they intended on filing a lien?

I presume this is your property - you are the owner?

What would you be contesting?
Customer: replied 1 year ago.

It's complicated. Am purchasing my next door neighbor's home via a private sale. Hired a contractor to start remodeling while awaiting a closing date. The deal was labor only, materials to be paid by us. He either didn't do the work or it had to be redone. Paid him $5K plus a vehicle (truck worth $4K) for first week of work. When we discovered he had a 14 year old on the job and work agreed upon wasn't getting done, we met with him. We talked with the subs and learned they were not be paid their agreed upon rate. When tile fell off the wall we offered to pay him his $300 per day plus the actual rate of the subs. We told he we put a hold on two checks awaiting his response. We gave him a written settlement offer. He did not respond so we stop paid the checks. We did not have a contract. Now the lien is on the previous owner. We will close before the end of the month. No one has received the notice but the owner has vacated the home and suspects it was returned as unable to deliver. We think it is a Claim of Lien. We do not want to pay him the $4,500 in cancelled checks and have discovered that work he did on our home is faulty and has to be redone (significant work).

Expert:  Law Pro replied 1 year ago.
Then you are going to have retain legal representation and have the lien voided.

In TX - pre-lien notices must be sent by certified mail.

In TX, the courts consider a mechanic’s lien to be a privilege and not a right. A contractor, sub-contractor or supplier receive its benefits only if they strictly adhere to the state law requirements. BotXXXXX XXXXXne: if they miss a deadline by one day nor properly comply with the procedural requirements they lose. Unlike other areas of the law where you can argue equities, find technical exceptions, and lawful excuses, there is no forgiveness here.


The owner must be specifically personally served.

So, if the mechanic's lien is already filed and now of record - then you have no alternative but to have the mechanic's lien voided.
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Customer: replied 1 year ago.

Can we put the money in escrow at closing so that we have time to void the lien? Are you saying that all he has to do is perfect the lien and it is attached? The previous owner has NOT been specifically or personally served. Also, are you saying that negligence or failure to perform work does not negate the contractors' right to file a lien earn a mechanic's lien. Also, the previous owner had not contact with him whatsoever. She also had no contract. How can he lien up the property of a third party with no written agreement with the owner.

Expert:  Law Pro replied 1 year ago.
Can we put the money in escrow at closing so that we have time to void the lien?

Yes, in fact that's what you should do. However, the seller would have a complaint against you because they were not part of the entire matter. So you do so at your risk of being sued by the seller.

Are you saying that all he has to do is perfect the lien and it is attached?

Yes. A general contractor can just file the lien but they must serve notice upon the owner.

The previous owner has NOT been specifically or personally served. Also, are you saying that negligence or failure to perform work does not negate the contractors' right to file a lien earn a mechanic's lien.

They can file the lien but you have the right to dispute the lien - that they didn't perform pursuant to the contract or didn't provide the materials or didn't perform the job in a workmanship like manner.

You will have to file suit to void the lien if they did file the mechanic's lien and it's of record.

Also, the previous owner had not contact with him whatsoever. She also had no contract.


How can he lien up the property of a third party with no written agreement with the owner.

It's the owner's property - work or supplies were given or done on the property. As such - they are entitled to lien the property. An example is some flooring company who supplies flooring directly to the contractor and doesn't ever talk to the owner - the flooring company can file a mechanic's lien against the property for the value of the supplies. Same in your situation.
Customer: replied 1 year ago.

How can we dispute the lien if we decide to pay it so that it doesn't interfere with our real estate transaction? Our lawyer said the the amount of the lien will likely be less than the lien itself. I am surprised that the contractor doesn't have to prove his case and that the homeowner is this vulnerable to a dishonest contractor - but, yes, I know, it's the law.


 


How can I find out if there is indeed a lien - go to the County Clerk's office and search?


 


On what grounds can the seller sue us if we put the money in an escrow account? And what about damages that were incurred when we had to hire a new contractor to tear out the bad workmanship - and of course, time lost on labor. Also, the contractor asked for the title on our truck which we gave to him in good faith (said he needed it to change the registration - guess we were to busy to vet that need). He still owes us $1,000 even if we pay him the $4,500.


 


There's one born every minute, right. Gotta laugh. By the way, you've been great. I will give you a double thumbs up. :)

Expert:  Law Pro replied 1 year ago.

How can we dispute the lien if we decide to pay it so that it doesn't interfere with our real estate transaction? Our lawyer said the the amount of the lien will likely be less than the lien itself. I am surprised that the contractor doesn't have to prove his case and that the homeowner is this vulnerable to a dishonest contractor - but, yes, I know, it's the law.


You can try and negotiate a settlement with him OR, if they are unreasonable, file suit to void the lien and for your damages for wrongfully filing the lien in bad faith (considered a "perversion" or abuse of process).

 


How can I find out if there is indeed a lien - go to the County Clerk's office and search?


Yes, you can search under the homeowners name and property address - either way.

 

It will show if there is a lien filed.

 


On what grounds can the seller sue us if we put the money in an escrow account?

 

Would the seller be getting the price they bargained for? The seller didn't authorize nor contract with the contractor. As such, if I were advising them - I would inform them that they don't have to put any monies into escrow.

 

 

And what about damages that were incurred when we had to hire a new contractor to tear out the bad workmanship - and of course, time lost on labor.

 

Now that's where I would file suit against the contractor - for breach of contract, performance of the work in an unworkman like matter, and the costs to get the job done by another contractor. That you get the second contractor to itemize all the problems that the first caused - they are considered an "expert" and can testify about the first contractor and their poor performance.

 

Also, the contractor asked for the title on our truck which we gave to him in good faith (said he needed it to change the registration - guess we were to busy to vet that need). He still owes us $1,000 even if we pay him the $4,500.

 

 

I would contact the contractor and state that if you can't negotiate a settlement you will have no alternative but to file suit and pursue all your damages including late settlement, the additional costs of the second contractor, attorney's fees and court costs, and exemplary damages for their fraudulent conduct.

 

 

 

I would say to them that if you can't resolve the matter you will pursue all your legal remedies including filing suit.

 

That he will be scared - he doesn't have any monies to fight this and he knows he's been fraudulent. You really have the contractor up a creek without a paddle.

 

 

 

Customer: replied 1 year ago.

Thanks - this is very helpful. As far as the escrow is concerned, we told the seller that we would pay it (of course!). She is aware of the situation and would like for us to escrow the money because she is perhaps more adamant than us that he is defrauding us and bargaining in bad faith.


 


Would it be wise to talk with the Title company if we find that a lien is actually been recorded? Do you know how long it takes from the time the Claim of Lien is filed to when an actual lien is attached to the property? We already have a schedule C and have paid for the title search. However, we don't want to interrupt the transaction and would prefer to be forthright.


 


If we have to pay it - the lien - (our interest rate may expire while we are arguing and we would like to avoid that - plus the Seller is anxious to see her money), can we sue for interfering with the transaction? He knew that we were in the middle of the deal. If we do pay him, doesn't a release of lien suggest that we release him and won't come back for our damages? Or do you simply add the lien amount (after paying it) into a future suit?


 


When we offered him a very, very fair settlement, he specifically asked if we were going to 'indemnify' him. This suggests that he was aware that there a multiple issues with his work.

Expert:  Law Pro replied 1 year ago.
If the seller is willing to escrow - then you're in great shape. However, even if you close and pay the seller that still doesn't preclude you from pursuing the contractor as described before. You have 4 years to pursue the contractor before the statute of limitations expires - so you have lots of time.

Would it be wise to talk with the Title company if we find that a lien is actually been recorded?

 

It's recorded and of public record in days. I would talk to the title company but they are going to say to pay the seller and go after the contractor.

 

Do you know how long it takes from the time the Claim of Lien is filed to when an actual lien is attached to the property? We already have a schedule C and have paid for the title search. However, we don't want to interrupt the transaction and would prefer to be forthright.

 

It's really your problem as to the lien. However, as I stated, I would contact the contractor and negotiate a settlement for nominal amount or pursue them in court.


 


If we have to pay it - the lien - (our interest rate may expire while we are arguing and we would like to avoid that - plus the Seller is anxious to see her money), can we sue for interfering with the transaction?

 

No, your only recourse is for your damages given the facts you presented.

 

He knew that we were in the middle of the deal. If we do pay him, doesn't a release of lien suggest that we release him and won't come back for our damages? Or do you simply add the lien amount (after paying it) into a future suit?




Yes, the lien amount are part of your damages against him if you file suit (along with the other damages I stated before). I would contact and try to negotiate a settlement but if that's unsuccessful file suit asap but pay the lien so that you don't lose your interest rate.



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When we offered him a very, very fair settlement, he specifically asked if we were going to 'indemnify' him. This suggests that he was aware that there a multiple issues with his work.

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